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Berenberg analysts have initiated coverage of Smiths Group, a diversified engineering firm, with a 'hold' rating and a target price of 1,757.0p. The analysts noted that Smiths Group's diversified portfolio offers some earnings stability, but they believe that other companies in the sector may present stronger performance prospects.
Berenberg identified several key factors supporting Smiths Group’s outlook. The firm benefits from structural growth drivers such as the global focus on energy security and transition, increasing demands for safety and security, rising global air travel, and growth in data and communications. These factors contribute to the firm’s resilience in various market conditions.
Despite these advantages, Berenberg pointed out that Smiths Group’s earnings might face limitations due to its less pronounced gearing towards an industrial recovery. This implies that while the company's aftermarket model and multi-year order books for Smiths Detection offer some degree of earnings resilience, other companies in the sector might be better positioned to benefit from a broader industrial upswing over the next 12 months.
In terms of financial performance, Berenberg forecasts a compound annual growth rate of approximately 10% for earnings per share (EPS) from fiscal year 2024 to fiscal year 2026. This projection is slightly above the consensus estimates. The forecast also incorporates an annual share buyback of £100.0m, which is anticipated to further support EPS growth.
Smiths Group’s current trading metrics include a price-to-earnings ratio of 15.3x for fiscal year 2025 and an enterprise value-to-EBIT ratio of 11.4x. Although Berenberg acknowledges the inherent strengths in Smiths Group’s operations and market positioning, the analysts believe that there may be more attractive value opportunities in other companies within the sector at this time.
Overall, Berenberg's analysis suggests that while Smiths Group demonstrates considerable resilience and benefits from several positive market trends, its performance relative to other industry players might not be as compelling in the near term. Consequently, the firm's rating reflects a cautious approach, with the potential for better investment opportunities elsewhere in the sector.
